Question 1

A decrease in interest rates caused by a change in the price level would cause a(n):

Accepted Answer

A) decrease in aggregate demand. 
B) increase in aggregate demand. 
C) decrease in the quantity of real domestic output demanded. 
D) increase in the quantity of real domestic output demanded. 
A) decrease in aggregate demand. 
B) increase in aggregate demand. 
C) decrease in the quantity of real domestic output demanded. 
D) increase in the quantity of real domestic output demanded.

Question 2

Refer to the diagram given below.   Assume that the nominal wages of workers in an economy are initially set on the basis of the price level P2 and that the economy initially is operating at the full-employment level of output Qf.In the diagram, the long-run aggregate supply curve:

Accepted Answer

A) is represented by AS2. 
B) is a vertical line extending from Qf upward through the points e, b, and d. 
C) may be either AS1, AS2, or AS3 depending on whether the price level is P1, P2, or P3. 
D) is a horizontal line extending from P2 rightward through points f, b, and g. 
A) is represented by AS2. 
B) is a vertical line extending from Qf upward through the points e, b, and d. 
C) may be either AS1, AS2, or AS3 depending on whether the price level is P1, P2, or P3. 
D) is a horizontal line extending from P2 rightward through points f, b, and g.

Question 3

Assume that an initial change in spending of $10 billion results in a rightward shift in aggregate demand that increases real GDP by $40 billion.The multiplier is:

Accepted Answer

A) $10 billion. 
B) $40 billion. 
C) 4 
D) 5 
A) $10 billion. 
B) $40 billion. 
C) 4 
D) 5

Question 4

The aggregate demand curve shows the:

Accepted Answer

A) inverse relationship between the price level and real GDP purchased. 
B) direct relationship between the price level and real GDP produced. 
C) inverse relationship between interest rates and real GDP produced. 
D) direct relationship between real-balances and real GDP purchased. 
A) inverse relationship between the price level and real GDP purchased. 
B) direct relationship between the price level and real GDP produced. 
C) inverse relationship between interest rates and real GDP produced. 
D) direct relationship between real-balances and real GDP purchased.

Question 5

Which of the following explains why the aggregate demand schedule is downward sloping?

Accepted Answer

A) the real-balances effect 
B) the interest rate effect 
C) the foreign trade effect 
D) all of these 
A) the real-balances effect 
B) the interest rate effect 
C) the foreign trade effect 
D) all of these

Question 6

Suppose the full-employment level of real output (Q) for a hypothetical economy is $500 and that the price level (P) initially is 100.Use the following short-run aggregate supply schedules to answer the next question.   Refer to the information above.In the long run, a fall in the price level from 100 to 75 will:

Accepted Answer

A) decrease real output from $500 to $440. 
B) increase real output from $500 to $620. 
C) change the aggregate supply schedule from (a) to (c) and produce an equilibrium level of real output of $500. 
D) change the aggregate supply schedule from (a) to (b) and produce an equilibrium level of real output of $500. 
A) decrease real output from $500 to $440. 
B) increase real output from $500 to $620. 
C) change the aggregate supply schedule from (a) to (c) and produce an equilibrium level of real output of $500. 
D) change the aggregate supply schedule from (a) to (b) and produce an equilibrium level of real output of $500.

Question 7

An increase in the aggregate expenditures schedule:

Accepted Answer

A) increases aggregate demand by the amount of the increase in aggregate expenditures only. 
B) increases aggregate demand by the amount of the initial increase in aggregate expenditures times the multiplier. 
C) decreases aggregate demand by the amount of the increase in aggregate expenditures. 
D) decreases aggregate demand by the amount of the initial increase in aggregate expenditures times the multiplier. 
A) increases aggregate demand by the amount of the increase in aggregate expenditures only. 
B) increases aggregate demand by the amount of the initial increase in aggregate expenditures times the multiplier. 
C) decreases aggregate demand by the amount of the increase in aggregate expenditures. 
D) decreases aggregate demand by the amount of the initial increase in aggregate expenditures times the multiplier.

Question 8

Which effect best explains the downward slope of the aggregate demand curve?

Accepted Answer

A) a multiplier effect 
B) an income effect 
C) a substitution effect 
D) a real-balances effect 
A) a multiplier effect 
B) an income effect 
C) a substitution effect 
D) a real-balances effect

Question 9

The following table gives information about the relationship between input quantities and real domestic output in a hypothetical economy:   If the price of each input is $5, the per unit cost of production in the above economy is:

Accepted Answer

A) $5 
B) $2.75. 
C) $2.50. 
D) $.40. 
A) $5 
B) $2.75. 
C) $2.50. 
D) $.40.

Question 10

The determinants of aggregate demand:

Accepted Answer

A) explain why the aggregate demand curve is downward sloping. 
B) explain shifts in the aggregate demand curve. 
C) demonstrate why real output and the price level are inversely related. 
D) include input prices and resource productivity. 
A) explain why the aggregate demand curve is downward sloping. 
B) explain shifts in the aggregate demand curve. 
C) demonstrate why real output and the price level are inversely related. 
D) include input prices and resource productivity.

Question 11

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4.Refer to the above information.All else equal, if the price of each input increased from $4 to $6, productivity would:

Accepted Answer

A) fall from 2 to 3. 
B) fall from .50 to .33. 
C) rise from 1 to 2. 
D) remain unchanged. 
A) fall from 2 to 3. 
B) fall from .50 to .33. 
C) rise from 1 to 2. 
D) remain unchanged.

Question 12

A rightward shift in the aggregate supply curve might best be explained by:

Accepted Answer

A) an increase in business taxes. 
B) a decrease in productivity. 
C) an increase in nominal wages. 
D) a decrease in the price of imported resources. 
A) an increase in business taxes. 
B) a decrease in productivity. 
C) an increase in nominal wages. 
D) a decrease in the price of imported resources.

Question 13

A fall in real interest rates will reduce aggregate demand.

Accepted Answer

A) True 
 B)False

Question 14

The following list of items are related to aggregate demand and/or aggregate supply.Entrepreneurial ability Consumer expectations
Degree of excess capacity
Personal income tax rates
Productivity
National income abroad
Business taxes
Domestic resource availability
Business taxes
Domestic resource availability
Prices of imported products
Profit expectations on investments
Refer to the above list.Changes in which combination of factors best explain why the aggregate supply curve would shift?

Accepted Answer

A) 1 and 2 
B) 2 and 10 
C) 3 and 6 
D) 7 and 8 
A) 1 and 2 
B) 2 and 10 
C) 3 and 6 
D) 7 and 8

Question 15

A decrease in aggregate demand is most likely to be caused by:

Accepted Answer

A) an increase in the wealth of consumers. 
B) an increase in consumer confidence. 
C) an increase in interest rates for home mortgages. 
D) a decrease in tax rates on household income. 
A) an increase in the wealth of consumers. 
B) an increase in consumer confidence. 
C) an increase in interest rates for home mortgages. 
D) a decrease in tax rates on household income.

Question 16

Other things equal, an increase in the price level will:

Accepted Answer

A) shift the short run aggregate supply curve to the right. 
B) shift the aggregate demand curve to the right. 
C) cause a movement up along a short-run aggregate supply curve. 
D) cause a movement down a short run aggregate supply curve. 
A) shift the short run aggregate supply curve to the right. 
B) shift the aggregate demand curve to the right. 
C) cause a movement up along a short-run aggregate supply curve. 
D) cause a movement down a short run aggregate supply curve.

Question 17

The following table is for a particular country in which C is consumption expenditures, Ig is gross investment expenditures, G is government expenditures, X is exports, and M is imports.All figures are in billions of dollars.Each question is independent of the other questions.   Refer to the above table.If the aggregate supply schedule intersects the aggregate demand at price level 119 in this country, its equilibrium level of real GDP will be:

Accepted Answer

A) $37 billion. 
B) $35 billion. 
C) $26 billion. 
D) $43 billion. 
A) $37 billion. 
B) $35 billion. 
C) $26 billion. 
D) $43 billion.

Question 18

An increase in the GDP price level will:

Accepted Answer

A) decrease aggregate demand. 
B) increase the quantity of real domestic output demanded. 
C) increase aggregate demand. 
D) decrease the quantity of real domestic output demanded. 
A) decrease aggregate demand. 
B) increase the quantity of real domestic output demanded. 
C) increase aggregate demand. 
D) decrease the quantity of real domestic output demanded.

Question 19

The economy experiences an increase in the price level and a decrease in real domestic output.Which is a likely explanation?

Accepted Answer

A) productivity has increased 
B) input prices have increased 
C) excess capacity has decreased 
D) government regulations have been reduced 
A) productivity has increased 
B) input prices have increased 
C) excess capacity has decreased 
D) government regulations have been reduced

Question 20

Refer to the diagram given below.   If aggregate supply shifts from AS1 to AS3, then the real domestic output will:

Accepted Answer

A) increase and the price level will increase. 
B) increase and the price level will decrease. 
C) decrease and the price level will increase. 
D) decrease and the price level will decrease. 
A) increase and the price level will increase. 
B) increase and the price level will decrease. 
C) decrease and the price level will increase. 
D) decrease and the price level will decrease.

Exam 12: B: Aggregate Demand and Aggregate Supply

A decrease in interest rates caused by a change in the price level would cause a(n):

Refer to the diagram given below. Assume that the nominal wages of workers in an economy are initially set on the basis of the price level P2 and that the economy initially is operating at the full-employment level of output Qf.In the diagram, the long-run aggregate supply curve:

Assume that an initial change in spending of $10 billion results in a rightward shift in aggregate demand that increases real GDP by $40 billion.The multiplier is:

The aggregate demand curve shows the:

Which of the following explains why the aggregate demand schedule is downward sloping?

An increase in the aggregate expenditures schedule:

Which effect best explains the downward slope of the aggregate demand curve?

The following table gives information about the relationship between input quantities and real domestic output in a hypothetical economy: If the price of each input is $5, the per unit cost of production in the above economy is:

The determinants of aggregate demand:

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4.Refer to the above information.All else equal, if the price of each input increased from $4 to $6, productivity would:

A rightward shift in the aggregate supply curve might best be explained by:

A fall in real interest rates will reduce aggregate demand.

A decrease in aggregate demand is most likely to be caused by:

Other things equal, an increase in the price level will:

An increase in the GDP price level will:

The economy experiences an increase in the price level and a decrease in real domestic output.Which is a likely explanation?

Refer to the diagram given below. If aggregate supply shifts from AS1 to AS3, then the real domestic output will:

B: Limits, Alternatives, and Choices

A: - Limits, Alternatives, and Choices

B: The Market System and the Circular Flow

A: - The Market System and the Circular Flow

B: Demand, Supply, and Market Equilibrium

A: - Demand, Supply, and Market Equilibrium

B: Market Failures: Public Goods and Externalities

A: - Market Failures: Public Goods and Externalities

B: Governments Role and Government Failure

A: Governments Role and Government Failure

B: an Introduction to Macroeconomics

A: an Introduction to Macroeconomics

B: Measuring the Economys Output

A: Measuring the Economys Output

B: Economic Growth

A: Economic Growth

B: Business Cycles, Unemployment, and Inflation

A: Business Cycles, Unemployment, and Inflation

B: Basic Macroeconomic Relationships

A: Basic Macroeconomic Relationships

B: The Aggregate Expenditures Model

A: The Aggregate Expenditures Model

A: Aggregate Demand and Aggregate Supply

B: Fiscal Policy, Deficits, Surpluses, and Debt

A: Fiscal Policy, Deficits, Surpluses, and Debt

B: Money, Banking, and Money Creation

A: Money, Banking, and Money Creation

B: Interest Rates and Monetary Policy

A: Interest Rates and Monetary Policy

C: Financial Economics

A: Long-Run Macroeconomic Adjustments

B: Long-Run Macroeconomic Adjustments

A: International Trade

B: International Trade

A: The Balance of Payments and Exchange Rates

B: The Balance of Payments and Exchange Rates

The Economics of Developing Countries

Filters

Refer to the diagram given below. Assume that the nominal wages of workers in an economy are initially set on the basis of the price level P₂ and that the economy initially is operating at the full-employment level of output Q_f.In the diagram, the long-run aggregate supply curve:

Refer to the diagram given below. If aggregate supply shifts from AS₁ to AS₃, then the real domestic output will: